A major speech Wednesday promises a host of pro-growth policies to turn the UK economy around. But the hurdles in the chancellor’s way are huge.
LONDON — Rachel Reeves the miserabilist is gone: Long live the sunny rebrand of Britain’s top finance minister.
The Labour chancellor will use a speech Wednesday morning to announce a blizzard of deregulation aimed at boosting the United Kingdom’s miserly 0.1 percent growth rate — and turning around the struggling government’s fortunes.
A stage-managed build-up of pledges has included more housing near rail stations, more freedom for pension funds, plans to make it harder for courts to block infrastructure, and a potential easing of U.K. visa rules for artificial intelligence innovators.
On Wednesday Reeves will talk up “Europe’s Silicon Valley” between Oxford and Cambridge — promising rail links, new homes, science parks and even, for the truly cheerful, a Universal Studios theme park. Reeves is also tipped to lend her broad backing — like so many failed attempts before — to expansion of London’s airports.
It marks a striking change in tone from the Reeves who imposed billions in tax rises at her first budget last year. And it may remind some of the pro-growth zeal of short-lived Tory Prime Minister Liz Truss.
Aides insist Reeves has been consistent, pointing to her need to deal with global shocks and her inheritance from 14 years of Conservative government. Since taking office, she’s pushed a mantra of stability, investment and reform, they say. Stability — dealt with at the budget — was “step one,” argued an official.
But Reeves hardly has time on her side — and even a bullish speech Wednesday will still leave a major economic turnaround job on her plate.
Letting growth take flight
No greater symbol of Britain’s economic paralysis exists than London’s scattergun array of airports. No new full-length runway has been built in the south east of the country since the 1940s.
Reeves has done nothing to scotch expectations that she will offer political support Wednesday today to expanding three airports: Luton, Gatwick and Heathrow. But even she cannot bulldoze through the process. Gatwick and Luton have both submitted “development consent orders” for expansion, but the decisions — due by Feb. 27 and Apr. 3 respectively — are quasi-judicial ones for Transport Secretary Heidi Alexander.
Heathrow won a Supreme Court battle for expansion in December 2020, but costs have ballooned since and it has still not submitted a DCO. An industry figure, granted anonymity like others in this piece to speak frankly, said they believe Heathrow has a plan “ready to go,” but needs a strong political steer given past setbacks. But even then, the application process would still take years. A second industry figure said: “The airport works as it is … the view is that a third runway would be a good thing for the country and businesses, but everyone’s seen this show before so there is a need to get enough political support.”
Parliament backed the principle of a third Heathrow runway in 2018 — but expansion has been held up by court battles, environmentalists and constituency interests. Labour officials have little idea how many of the party’s own MPs will rebel if another vote is held, as some advisers expect.
Labour’s 2024 landslide, though — and the hordes of young, pro-growth, loyal MPs it ushered in — means commercial realities and the slow march of time are likely to be bigger blockers than the parliamentary party. Gatwick’s DCO has taken 18 months so far.
Build, baby, build
Labour has pledged a conveyor belt of reforms to the planning system — including restricting rights to bring judicial reviews against major infrastructure projects — in a bid to get more major infrastructure built, and meet a self-imposed target of 1.5 million new homes by 2029.
Reeves told the Guardian ahead of the speech that she would back a “zoning scheme,” where areas around train stations (for example) have a presumption in favor of development. But the details of how this will all work have yet to be decided.
An overnight press release from the Treasury is littered with announcements to get building, including that the Environment Agency has lifted objections to a 4,500-home development in Cambridge, and that water firms will be allowed to build nine new reservoirs. Science Minister Patrick Vallance, who met Reeves in the Treasury on Monday, is an “Oxford-Cambridge Growth Corridor champion.”
But the planning system is littered with complex legislation designed to protect the environment, and political victory will only come when these projects are complete. MPs and regional mayors are also nervous to ensure projects are not just concentrated in southern England. Reeves announced overnight that she will review the way Treasury guidance (the “green book”) is drawn up to spread investment across the country.
Some MPs are concerned, too, about Reeves’ suggestion last week that growth “trumps other things,” even the environment. Even one loyal new MP said: “There’s a general nervousness that we need to keep the debate framed as ‘we can do both at the same time,’ and not buy into this argument of pitting one against the other.”
Regulation? What regulation?
Reeves has told regulators to do much more to support growth — and effectively forced out the chair of antitrust watchdog the Competition and Markets Authority, for (in her eyes) not doing enough. Starmer has joined her in beating the drum — claiming the economy is “turning around,” ordering Cabinet ministers to shelve policies that do not boost growth — and even bringing up deregulation in a call with U.S President Donald Trump.
There is more to come. Her spokesperson said: « The overwhelming message at the end of her speech will be that we’re not done yet. »
Ministers want AI to save billions through increased public sector productivity, and have promised regulation light enough to “actively support innovation.” But the government is already in conflict with creative industries — as well as Beatles singer Paul McCartney — over its planned copyright regime for music, films and books that are “scraped” by AI models.
Some deregulation reforms seem inspired, in part, by the Tories Reeves likes to bash. A plan to let pension funds invest their surpluses is part of a consultation that launched under the last government. Tory Shadow Chancellor Mel Stride said the « biggest barriers to growth in this country are Rachel Reeves, Keir Starmer, and their job-destroying budget. »
Others will take time. Her plan for £800 billion worth of private pension schemes to be consolidated into “megafunds,” announced in November, would not come in before 2030 — and even then, “some in the industry think this may be too quick,” former Lib Dem Pensions Minister Steve Webb told POLITICO.
The march of time
Reeves’ biggest foe by far is the clock. This Labour government is already more than 10 percent of the way through its term.
New airport runways are unlikely to be operational until she is out of office. It is almost a decade since MPs were told that a new runway would be built at Heathrow or Gatwick by 2030.
Reeves has promised ahead of the speech to “champion” a major regeneration around Old Trafford, the home stadium of Manchester United Football Club. But achieving it will require a mayoral development corporation that is not yet formally established.
Of course, pro-growth measures can still be a good idea even if they take time. It is « a problem for Rachel Reeves, but I think it’s the right thing for the economy, » said Paul Johnson, director of the non-partisan Institute for Fiscal Studies think tank. « If you make schools better, it’s going to be at least 10 years before the kids are in the labor market being more productive. »
Sorry, there is no money
Minds in the Treasury are already on Feb. 4, when the Office for Budget Responsibility watchdog will submit its first of five private estimates of the “headroom” Reeves will have for new spending later in the year.
Ministers are already tightening belts ahead of a public OBR forecast on Mar. 26 — which will affect the bond markets — and a spending review later in the summer.
Economic growth would increase this headroom and allow public services more investment — but only later. In the meantime, ministers will grapple with real cuts at a time when the cost of living remains under pressure.
Wednesday sees the launch of the Good Growth Foundation, led by former Labour candidate Praful Nargund. It will likely be mostly friendly to the government, though Nargund said that without a “visceral impact” on people’s lives, the voting public will not credit the government for any growth.
Johnson added that Reeves’ projections in the October budget were « very, very tight, so it wouldn’t take much to change to lose her headroom, as we saw when gilt markets changed and that would have been just about enough to wipe out the headroom.”
The economy is sick
The U.K. has 2.8 million people who are long-term sick, close to the highest level since comparable records began in 1993. Reeves has set her sights not just on reducing this number but on overhauling the whole welfare state.
Work and Pensions Secretary Liz Kendall presented a white paper on employment support in November, and plans to “reform or replace” work capability assessments, which allow some sick or disabled people to claim certain benefits and prevent others from claiming them altogether. Kendall is working on a green paper with proposals that is due before Easter.
But she suffered a setback this month after the High Court ruled a consultation on previous changes to the assessment, by the last government, were unlawful. Kendall now plans to re-consult on the plans and largely press ahead with them.
Plenty of Conservative ministers tried welfare reforms before her, with mixed success. One Tory aide said: “We know from our 14 years in government that it’s very easy to announce something. There are many things we announced that didn’t see the light of day.”
Trump card
Last but not least is Reeves’ balancing act in trying to boost trade with the United States, European Union and China — all at the same time. With Trump in the White House, that may not last.
When Reeves asked small business leaders for their growth ideas in a Treasury meeting on Tuesday, the replies were dominated by international trade. It is one of the few short-term ways of boosting growth.
But while aides hailed £600 million in agreements she secured on a recent visit to China — relatively small in Treasury terms — China hawks fear any increased dependence on Beijing. U.S. Secretary of State Marco Rubio highlighted China’s “malign influence” on his first call with British Foreign Secretary David Lammy.
The shape of Britain’s relationship with the EU will become clearer over the next year too, with the first review of the post-Brexit Trade and Co-Operation Agreement. Starmer — who will meet 27 EU leaders next Monday — wants a “reset” with Europe, but has set out little so far of what this will mean for the TCA aside from elements such as a veterinary agreement.
Home Secretary Yvette Cooper opposes measures pushed by the EU, such as a youth mobility deal, that would add to Britain’s politically sensitive migration statistics. Starmer, while insisting he has no plans for such a deal, has left a sliver of ambiguity.
Whether the quest for growth will come first on this hot-button issue remains to be seen.
James Fitzgerald contributed reporting.
